When To Buy A Home And How To Avoid Screwing It Up

By cwaltersNovember 2, 2009

Are you hitting that stage in life where you’re thinking of becoming a homeowner? Morningstar has published two home buying articles that together offer some good, concise advice to the prospective buyer, especially if you’re a first-timer.

“8 Signs You Should Not Buy a House” may be a tough list to absorb if you’ve been turning a blind eye to immediate financial issues like credit card debt and savings accounts, but following this advice will put you in a much safer position for a new home. Once you’ve made sure it’s the right time to buy, “8 Home Buying Blunders” has some tips that should help protect you from unanticipated problems at closing or after you’ve moved in.

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Hm. The ratio thing is interesting. Considering that a nice two bedroom/two bath w/parking runs roughly 1800 in places like Bucktown and Lakeview in Chicago, it seems as though the market pricing ratio 425,000/21600= 19 percent. Does this actually mean pricing is actually in line? I actually suspect it’s not pricing keeping people from buying so much as it is fears of unemployment.

Our current five year plan ends with “buy a house”. I don’t know where we will be living in five years from now- it depends where I find work- but my wife and I have resolved not to look for houses until we have all our credit cards paid off and we can put 25% down.

When interest rates are low, you put as little down as you can– 5% usually works. That’s why they have PMI.

And I hate the snobs who like to pretend buying a house is complicated- its not any more complicated than buying a car. You shop around, find what you need (location, location, location) and make an offer. How freakin’ hard is that.

@JGKojak: I wish it were that easy! Seriously not a snob, but I’ve got the location, location, location picked out…. but can’t seem to seal the deal (outbid twice in the past 2 months)… It’s not that easy for everyone – I envy you! I’m looking for a house where I can stay put for maybe 20 years, so I think it’s a lot more complicated than buying a car!

I truly believe that FREEDOM is one of the most undervalued assets a person can have. Freedom to pick up and move to a new place if you want, freedom to change careers (i.e. perhaps take a major pay cut) if you discover that you actually hate what you are doing for a living, etc. And most of the time, renting (not buying) is more conducive to freedom than buying. So before buying a home, do some real soul-searching on how much you value freedom/flexibility because buying a home can seriously limit it.

And I say this as a guy who bought a too-big (at the time) home before the boom, and lucked (timing-wise) into a 4.125% 15-year mortgage.

@DGberg: For me, freedom would come with buying the house. Wouldn’t have to live under anyone else’s rules (landlord, roommates, family), I’d be able to decorate it how I please, arrange it how I please, put in a garden and fence the yard for the cat, etc.

I’m almost 40 and haven’t bought a house. We have lived in a duplex for 12 years since it was new. Landlord had only raised our rent once by $40/month. We are allowed to paint the walls, we have a garage and front and backyards. We have had the money for quite awhile, but don’t need anything bigger than what we have. And it keeps up from accumilating so much junk.

on a semi related note, i’m looking to refinance my mortgage. right now it’s through wells fargo, my credit is good and i have 80 LTV, anyone know of a good place to look? anyone try lendingtree or any of the internet banks?

@craptastico: I have Wells Fargo and I did their “3-step refi”. You pay a tiny bit higher APR, but you don’t need an appraisal and there are no closing costs. The only catch is you can’t do cash out. They mailed the packet of papers to me, I signed them and took them to the branch to be notarized. No muss, no fuss. I dropped my rate from 5.875 to 5.325. It doesn’t sound like much, but it cost me nothing to do it.

My main thing was to get rid of my PMI and escrow and realize the amount I had paid the loan down because I only put 8% originally. I needed to shrink my monthly payments in advance of losing my job and going back to school.

Rent around here is about $750 for a decent 1/1 apartment. I think I come out ahead even after accounting for the higher costs of running a Victorian. I had kind of planned to die here in 50 years or so, but I never thought I would find someone that might change my mind about marrying again. Damn him.

I close on the 10th… spent a couple hours with my loan officer today to review the papers she’s sending to the underwriter tomorrow (email fee, right, that’s $75 you aren’t getting from me). Found an error in the numbers- $1,000 in builder credit that I wasn’t supposed to get, but did. Um. My builder might just let it slide at this point, which would be amazing. If not, we’ll go back to the numbers I budgeted for.

This is a boring story. For the sake of stats: I’m 23, single, and I’m getting a ridiculously good deal between builder incentives and the tax credit. Also working with a realtor and getting insurance through USAA which is, as they say, TEH CHEAP ($18/mo if the quote is correct).

@FatLynn: In general, I agree – but personally my husband & I are in the process of buying a home with 100% financing with a “physician loan” – if we had to wait until we’ve saved 20% to put down, then it would be a few more years to get a house we like – additionally, less $ invested in the house, more I have to put into other investments…..

@FatLynn: One thing you fail to take into account is the current interest rates. Yes, if prices free fall (which all signs point to they they won’t — drop probably, free fall no). However, you’re paying less in interest so if you plan to stay in said house for a significant period of time the drop in value right now will kill you less than higher rates in the future.

@FatLynn: If you are planning to stay in the home for more than 7 years, then it shouldn’t matter if the value drops some if you didn’t put down 20%. 20% or more can be quite a lot of money in some areas, and take a real long time for people to save up.

In my area, for example, a nice 3 BR house in a decent area is $300,000, so 20% is $60,000. My husband and I were saving up for a down payment at $2,000 a month and got $20,000 saved up before we bought. Yeah, we could have waited another 3 1/2 years, but I was pregnant with our second child and we really needed more room than our 2 br apartment. So we bought with 5% down, used the rest for closing costs. We’re paying PMI, and might have to do so a bit longer with the market flat, but our house hasn’t lost much, if any, value (just hasn’t gained anything), but we’re certainly doing much better on taxes (thanks to 2 kids and mortgage interest deduction).

@FatLynn: I think we put down about 7%, and we pay about $200 less in mortgage (including insurance and taxes) than we’d pay in rent (and no insurance) … we can pay off the PMI and get to 20% equity on the original loan faster than we could have saved up the 20% paying rent.

But we’re not in a bubble market, we bought less house than we could “afford” (aside from the down payment issue, which had to do with us being just out of school), and we intended to be here long enough to pay off the PMI even if we didn’t pay ahead at all. So it felt like a good decision for us, and it has worked out.

@FatLynn: There are many many people who can confidently say they won’t have to move in the foreseeable or distant future. If something does compel them to move, it’s likely a situation that makes a short sale or foreclosure seem like a non-issue.

Being underwater isn’t a good thing, but if they are settled in an area, it’s not that big of a deal. They can just keep making payments and ride it out. I know quite a few people who are underwater, but aren’t concerned because they have low mortgage rates and no plans to move. Their houses are their homes, not their investments.

If the buyer is getting a home that is too small, is an investment, or is in a neighborhood they aren’t sure about, 100% financing is bad. But in many, many situations, it shouldn’t be an issue.

@pecan 3.14159265: The spouse and I have a house, but are more than happy to let our friends get waaaaaay ahead of us on the baby thing. Me, I’m thinking more long the lines of a Boston terrier from one of the local rescue groups.